Significant changes have recently occurred in Medicare Part B coverage of mental health services: gradually phasing out the coverage limit, removing medical management services from the limit (and the 50 percent coinsurance requirement), and extending direct reimbursement to psychologists and social workers. The proposed two year study seeks to fill the research gaps about mental health costs and use under Medicare Part B, especially in light of recent benefit design changes. This study is particularly timely on the eve of the implementation of the Resource-Based Relative Value Scale for physician reimbursement. This study would provide important baseline information prior to payment reforms under RBRVS. Two Part B databases will be used: one containing all claims for a 5 percent national random sample of beneficiaries (BMAD) and one with all claims for the universe of beneficiaries in ten states which account for nearly one-fourth of all Medicare beneficiaries nationwide. The analytic time period is calendar years 1987 through 1991, with 1987 serving as a baseline period prior to coverage changes. Two analytic tasks are proposed: (1) baseline and trend analysis of Part B mental health spending and use using the national BMAD file; and (2) beneficiary-level analysis of utilization patterns over time using the Ten State Data Base. In addition to examining utilization patterns before and after the limit was raised (and ultimately eliminated), the study will examine the impact of direct reimbursement on costs and utilization. Also, three procedure-specific analyses are proposed on the use of medical management services, partial hospitalization services, and ECT treatments. This study will also project the costs of reducing the coinsurance rate from 50 percent to 20 percent, to achieve parity with medical and surgical services. This study will result in three important products: a comprehensive data book on Medicare and mental health services in the U.S. (1987-1991); an in- depth report on beneficiary level patterns of use in ten states including a discussion of policy implications; and a set of analytic files with a five-year time series of Part B mental health claims that could be used to pursue additional research on Medicare and mental health services under Medicare Part B.